Prosperity is in reach -- if the government would just spend more money. That was the message of a New York Times column by Yale economist Robert Shiller on Sunday. He attempts to take a common sense approach to explaining that the government could spend more to cut unemployment without raising the deficit: it would just have to concurrently raise taxes. This might sound simple enough, but the idea is political untenable, no matter how sensible it might sound to Shiller.
Most people belong to one of two camps when discussing government spending. Some people believe that the government can spend money in such a way that it enhances economic growth more than if the private sector had that money. Others believe that additional money collected by taxes would be better left for individuals and businesses to spend to promote economic growth. Shiller doesn't have to convince the former group that more spending could help; he has to convince the latter group. Let's look at a few things he says.
There are good arguments for balanced-budget tax increases. They don't lower average after-tax income, since every tax dollar goes directly to providing someone with income. Even those hurt by a tax increase may accept the sacrifice if they know it improves the chances that unemployed friends or relatives will find jobs.
Let's be clear: tax increases do lower some people's after-tax income. They just don't lower after-tax income for the entire nation. Shiller concedes this but believes that those harmed by a tax increase will understand that the collective good is worth the cost they face.